Chapter Three

Law of Contract

 Business or commerce cannot be operated without the conclusion of a contract, and there
are various formal and substantive requirements set by law that must be strictly adhered
to before entering into a binding agreement.
 The law of contract is applicable not only to the business community, but also to others.
Every one of us enters in to a number of contracts almost every day, and most of the time
we do so with-out even realizing what we are doing from the point of law.
 The law of contract is the most important branch of business law.

Sources of Obligation

 An obligation can be defined as certain duty (either contractual or legal) that has to be
discharged or otherwise constitutes a fault and entails legal liability.
 Hence, regardless of the source or the nature of the obligation, the essence of an
obligation lays in the fact that it requires to be discharged or it is obligatory to be
performed and if one of the parties failed to discharge their obligation there is an obvious
legal consequence- Liability.
 Accordingly, there are two basic sources of an obligation. These are:

1. Law: this is a legal obligation that mandatorily emanates from the direct operation of the law.

 The law directly imposes various imperative obligations on citizens to preserve various
interests.
 The typical interest that such obligation stands to defend is public interest.
 The protection of the interest of the public at large is non-negotiable.
 Hence, every law stands to protect public interest. Legal obligations are mandatory in
nature and require due obedience. Otherwise stipulated, the parties may not freely
disregard such obligations.

2. Contracts: as different from legal obligation sometimes the parties to certain contractual
engagement may up on their own free will (volition or consent) create and impose an obligation
towards one another.

 This is not an obligation imposed on the parties by the direct order of the law. Rather, this
is an obligation created by agreement of the parties- according to the principle of
Freedom of Contracts.
 As a result, most of the obligations involved in contracts are permissive in nature, which
are imposed by the parties themselves.
  However, once a contract has been duly constituted before the eyes of the law, after
fulfilling the requirements of formation, each provisions of the contract bind the parties
as a law.

3.2 Definition of contract

Contract basically upholds the following philosophical concepts.

 The first is Contractual freedom. The parties must be free from any defects which affect
their consent. The parties in principle are free to determine the content and form of the
contract withstanding some mandatory provisions of the law.
 Second, once the contracting parties entered in to the contract the law enforces it. A
validly formed contract binds the contractants and hence the law enforcing machineries
enforce it.
 Finally contracts have a relative effect. Contract only binds the contracting parties. It is
only the contracting parties who can benefit from the contract as well as obliged to
perform obligations. Contract doesn‟t bind the third parties (parties who are outside of
the contract).

Art. 1675 of the Ethiopian Civil Code. It states that:

"A contract is an agreement whereby two or more persons as between themselves create,

vary or extinguish obligations of patrimonial nature".

A) A Contracts is an Agreements

 An agreement is a mutual understanding between 2 or more persons about their relative

rights and duties.
 Or it is manifestation of mutual assent by 2 or more parties, legally competent persons,
to one another.
 An agreement is in some respects a broader term than a contract or even than bargain or
promise. Accordingly, the parties to the contract:

- Should negotiate, deal or bargain on all terms of the contract whether fundamental or incidental
terms of the contract.

- Should understand each other and express their understanding.

- Should have mutual understanding or consensus on the terms of the contract-Consensus

ad idem or there should be meeting of minds. And,

- Should, as much as possible, bargain in a win-win-situation.

  not all agreements result a contract. However, all contracts are necessarily the results of
an agreement.
 We engage in the conclusion of millions of agreements (of many types) every day and it
is very difficult to consider them as contracts.
 The purposes of contracts are very limited compared to the purposes of an agreement.
Agreements do not only serve (have) business objects.,
 Only agreements in which the parties have agreed to be bound (obliged) by the terms of
their agreement result a contract. the parties should agree and consent to be bound by the
terms of their agreement either expressly or impliedly.
 In conclusion, only agreements enforced (sanctioned) by law result in contracts. Or
failure of either or both parties to perform (honor) according to the contract entails
sanction by law against the failing party.
 This principle is called the principle of sanctitiy of contracts.
 The law does not negotiate on the keeping of promises. This goes in line with the
Amharic maxim- failure to keep a promise is worse than losing a descendant. Or the latin
maxim- Pacta sunt survanda.

The following agreements, for instance, may not result in a contract:

- Social or domestic Agreements:

- Simulated Agreements:

- Gentlemen‟s Agreement: where the parties made an open stipulation or an exculpatory clause
that their agreement does not result in liability.

B) A contract needs at least two persons (.… Where by two or more parties…)

 In order to conclude a legally binding contract there should be at least two or more
persons that are the parties to a contract.
 The main objective behind the conclusion of a contract is to exchange an economic value
dictated by self-insufficiency.
 However, some scholars mention article 2188 of the civil code of Ethiopia and argue that
a special agent empowered to sell car of the principal may conclude a contract with his
own self and sell the car to his self.

C) “…as between themselves…”

 The legal effect of a contract, whether positive or negative, shall be restricted to the
contractant parties .Privity of Contracts.
 The rule is, nobody shall be bound by any undertaking to which s/he has unconsented.

D) “...to create, vary or extinguish obligations…”

  The possible reasons for formation of a contract are stated in the definition. They are
creation, variation, and extinction of obligations.
 The first is a contract may be formed to create new obligations.
 The other reason may be variation of the existing obligations.
 The last purpose of a contract may be to extinguish or end existing obligation.

e) “…proprietary nature of the obligation…”

 Not all types of obligations are the subject matters of a contract. The main objective of a
contract is to exchange an economic value.
 The obligation to be exchanged should be patrimonial i.e., pecuniary (monetary) or
proprietary.
 At the end of the day, the consideration to be exchanged, as between the parties, should
be appreciated in terms of money or property.

3.3. Formation of a Contract

3.3.1. Elements of a Valid Contract

 According toArticle 1678 of the Ethiopian Civil Code states that no valid contract shall
exist unless:- ) fulfilling four essential elements. These are capacity, consent, object, and
form.

3.3.1. Capacity

 Capacity can be defined as the legal ability to exercise (practically) the attribute features
of legal personality or to perform juridical acts.
 As contract is a juridical act, (minors, Insane Persons . Merely Insane Persons ,
Notoriously Insane Persons, judicially interdicted persons), Disabled Person or because
he undergoes a prohibition (legally interdicted persons, foreigners) the law decides that
they cannot enter a contract
 the effect of lack of capacity and consent in a contract is the invalidation of the contract
upon the application of the party affected by the incapacity.
 Moreover, the effect of the invalidation of a contract is the restoration (reinstatement) of
the parties to the position before making the contract..

3.3.2. Object of Contracts

 Article 1678 of the Civil Code, states that "no valid contract shall exist unless the object
of the contract is sufficiently defined, is possible and lawful ...”
 failure to define the object is a critical defect, and makes the contract void and null.
 The object (obligation) undertaken in the contract may take one of three broad forms: to
do, to give, and not to do.
 In obligation to do, a party undertakes to act in a way required by the other.
  In obligation to give, a party undertakes to transfer a right (such as full ownership) on a
thing to another party.
 Finally, obligations not to do are negative obligations that require a party to refrain from
acting some way.

The general requirements that must be obeyed are three:

1. The object of the contract must be sufficiently defined: the parties to the contract should
ascertain the objects of their contract with sufficient precision, or the object should be specific in
meaning, quality, or quantity

2. The object of the contract must be possible: the performance of the object of the contract shall
be humanely possible at the time of the contract.

3. The object of the contract must be lawful moral, and in line with Public Policy :

 The object of a contract shall not be contrary to public laws or mandatory provisions of
private laws.
 Or, it should not be against any applicable law of the land or be declared illegal by an
express legal manifest or a statute or proclamation.
 the object of a contract shall not violate the morality of the place of the contract.

3.3.3. Form of Contracts

 As different from the other three elements for the validity of contracts (which are
mandatory), form is not mandatory.
 Or the requirement of form is permissive to the parties.
 There are certain important kinds of contracts which cannot be enforced in court unless
there are written agreements. Some of such kinds of contracts are:
1.Contracts in relation to immovable property;

2.Contracts with public administration;

3.Contracts of guarantee;

4.Contracts of insurance; and

5.Contracts to vary written contracts;

3.3.4 Consent

 consent is a party's willingness (volition/assent) to enter into a contract.

  the parties‟ consent to enter a contract should be given freely, voluntarily, and genuinely.
 It is a manifestation of freedom of contract, and therefore is the basis upon which rests
the entire law of contractual obligations.
 The element of intention to be bound is an important psychological aspect that relates to
the contract as a whole. Causes of Defects of consent
 Consent should not result from the so-called „vices of consent‟ or abnormal
circumstances, such as Fraud (deceit), Duress (coercion), Mistake (error), False
Information, Threat to exercise a right, Reverential fear (undue influence), and
unconscionableness (lesion).
 In conclusion, the effect of contracts that do not fulfill the requirements of capacity and
consent would become invalidated (valid until invalidated).
 A contracts with problems of „object‟ and „form would become Void or of no effect, ,
such contracts will be considered as if they have never been made from the beginning.

. 3.3.2. Offer and Acceptance

 An offer is a proposal or an invitation expressing the willingness of a party (called the

offeror) to create a contractual relationship with another party (called the offeree).
 Accordingly, to be binding, an offer should have the following characteristics:
i. An offer may be declared orally, in writing, by gesture (symbol), or by conduct.

ii. a subtle offeror stipulates a time limit on the offer and binds itself only to the lapse

of the period mentioned on the offer.

iii. To be valid, an offer has to be written down with indefinite enough terms and should

encompass a detailed (full-fledged) bargain or substance.

iv. An offer differs from a „mere declaration of intention‟ made by the offeror to enter into a

contract with the offeree..

v. An offer differs from „an invitation to offer‟ or „an invitation to treat.‟ As a result, the

posting up of tariffs, price lists, or catalogs or the display of goods or symbols for sale or use

of hotel menus, or the release of advertisements (ads.) by mass media such as product

advertisements or advertisements of an auction, are not by themselves binding offers.

vi. An offer may be made to a particular person (specific offer) or generally to the public at

large or a particular group out of the public (general offers).

b. Acceptance
Acceptance is the agreement of the offeree to the terms of the offer made by the offeror. The

following are the essential characteristics of a valid acceptance:

i. An acceptance may be made in writing or orally or by symbol or implied from conduct, and

it has to be communicated to the offeror. . However, if the offeror requires a particular type or

acceptance model (dictated), the accepter should comply

ii. An acceptance always implies an agreement and an intention to be bound by the terms of

the offer. Or, a serious intent to accept should be there.

iii. Acceptance shall be made while the offer is still in force or before the offeror withdraws

the offer

iv. A person cannot accept an offer that he does not know.

v. Cross-offers do not constitute an agreement or acceptance.

vi. An acceptance shall be made in the form and conformity with the terms specified in the
offer.

vii. An acceptance shall be made absolutely (totally or as is), unconditionally, and

unequivocally (vividly)

 if there is a discrepancy between the terms of the offer and the acceptance, the offer and
acceptance knock out each other, and there will be no contract. This is called the „Knock-
out Rule.
3.3.3. Silence when an Offer is made….
 according to article 1682 of the Civil Code of Ethiopia, silence when an offer is made
shall not amount to acceptance
 However, there are three exceptional situations whereby silence when an offer is made
amounts to acceptance. These are:
i. When the offeree must accept the offer made to it by law or by concession.

ii. In the case of General Terms of Business prescribed by Public Authorities

iii. In case of a pre-existing business relationship between two parties, an offer to continue or
vary an existing contract or enter into a subsidiary or complementary contract may be
accepted by silence

3.3.4. Time for the Completion of a Contract

 According to the general principles of contract law, two theories are used to determine
the exact time for the completion of a contract in cases where a contract is made between
absent or corresponding parties. These are:
 i. Theory of Dispatch:
 this is also called the „Mail-box Theory.‟ According to this theory, a contract is deemed
completed when the acceptance is sent to the offeror.
ii. Theory of Reception:
 according to this theory, a contract is deemed completed when the offeror practically
receives the acceptance. So, a mere sending of the acceptance by the offeree does not
complete the contract unless the offeror practically receives it.

3.3.5. Grounds for the Termination of an Offer

i. Lapse of the Duration of the Offer:

 the law dictates that whosoever offers another to enter into a contract and fixes a time limit
for acceptance shall be bound by his offer until the time limit specified expires.

Ii Revocation (withdrawal) of the Offer by the offeror:

 Revocation of the offer is the taking back of an offer by the offeror. The offeror has a
change of mind or circumstances and decides to withdraw the offer before it has been
accepted.
iii. Rejection by the Offeree:
 Even though an offer is made with a time limit or not, the offer will be terminated if the
offeree expressly rejects it before the lapse of the stated duration for acceptance or a
reasonable period.

iv. A Counter-offer by the Offeree; A „counteroffer‟ ends the first offer.

v. Death, Incapacity, or Bankruptcy of the Offeror or the Offeree: depending on the

nature of the obligation to be performed, the offeror’s or the offeree’s death, incapacity, or
bankruptcy may result in the termination of the offer.

In conclusion, offer must be made with serious intent, definite and certain, and communicated to
the offeree. And the acceptance must be unconditional and follow the rules regarding the
acceptance method.

3.5. Effects of contract

 The general effect of a validly concluded contract is its legal enforceability.

 Once they have created a contract between them following legitimate formation
requisites, parties are obliged to comply with the terms the breach of which would entail
a legal liability

3.6. Performance of Contract

  Performance is the execution of the obligation as per the terms of the contract. In the
normal course of things, a contractual obligation is to be discharged through
performance.

Who shall Perform?

 Both parties to the contract shall perform their respective obligations, which is the
recommended way of extinguishing contractual relationships.
Who is the Debtor?

 The debtor is the party who must discharge his obligations under the contract but has not
yet discharged the obligation or failed to discharge it

Who is the Creditor?

 The creditor is the party who has already discharged his obligation and expects the same
from the debtor.

How should the Debtor Perform its Obligation?

The debtor may perform the obligation in either of the following ways of performance:

a. In-person or Personal Performance: a type of performance where a party is bound to

perform the obligation by himself and only by himself or personally. Personal performance is

the rule.

i. If the performance requires the debtor's particular skills, experience, or training (expertise).
Or if the creditor has a specific interest in receiving such personal performance, the creditor
cannot require the performance from another person in the case circumstance.
ii. If the parties in the contract expressly agree upon personal performance. Or if the parties to
the contract have excluded other types of performance by agreement. And,

iii. If personal performance is dictated by the very nature of the obligation to be discharged
by the debtor.

b. Performance via the Instrumentality of a Third Party:

 this is a performance made by a third party to the contract.
 that is so authorized to perform on behalf of the debtor either by the debtor himself
(agent of the debtor) or
 the law (heirs-at-law of the debtor or co-debtors with the debtor or guarantors of the
debtor) or by order of the court (the court may order a third party to perform on behalf of
the debtor such as liquidators of debtor‟s succession)
 This type of performance is the exception to the rule of performance (personal
performance) and refers to all types other than in-person performance.
To whom shall the Debtor Perform the Obligation?
  The debtor shall perform (either personally or through a third party so authorized) to the
creditor or a third party.
 authorized either by the creditor himself (agent of the creditor) or by law (heirs-at-law of
the creditor) or by order of the court (such as joint creditors or the liquidator of the
creditor‟s succession).
What is the Fate of Payment (performance) made to an Incapable Creditor?

 the debtor's performance is not a valid performance and he is required to do his obligation
again to other people having the authority to act on behalf of the incapable creditor.

But the existence of two facts may release the debtor from his obligation.

 One is benefit the incapable person obtained from the performance. If the debtor succeeds
in proving that the performance he has done has well enriched (benefited) the incapable
creditor, his previous performance will be valid and he shall be released from his duty.
 The second is confirmation of the performance by the legal agents of the incapable
creditor.

What is the Fate of a Payment (performance) Made to an Unqualified Creditor?

 Payment made to an unqualified (unauthorized) person is invalid.

 However, such payment may be exceptionally valid where:
i. The actual creditor confirms the payment or

ii. The payment is to the advantage of the estate of the creditor or

iii. The payment is made in good faith to a person who is undoubtedly the creditor.

What if Two or more Persons Appear to be the Creditor and Claim Performance from
the Debtor? To whom should the Debtor make a Performance?

 Where there is a doubt as to who is qualified to be paid, in cases where more than one
person claims to be the creditor, the debtor may refuse to pay and release himself by
depositing the amount due with the court.
 However, the debtor shall pay at his own risk where he is aware of pending litigation
(contest) and pay to any persons (contestants) who hold themselves out to be creditors.

Identity of the Thing to be Delivered?

 The creditor shall not be bound to accept a thing other than that due to him.
 Therefore, the debtor is expected to deliver only a quality (the same species) of the thing
that has been particularly agreed upon in the contract.
 Otherwise, the debtor may not force the creditor to accept anything other than what is
agreed in the contract.
What if the Debtor caused a Partial Payment?
  Partial payment can be defined as any payment lesser than the total amount agreed on in
the contract.
 The creditor shall not refuse partial payment unless the debt is liquidated (an ascertained
and admitted debt) and wholly due (matured or exigible).
 where only part of the debt is contested, the creditor may take the admitted part and
claim the remaining.

What if Fungible Things is due for Delivery?

 Fungible things are things of interchangeable quality, taste, and value. These things are
regarded as commercially interchangeable with other properties of the same kind.
 The rule is that if the delivery is related to „fungible things‟ and the parties have not
specified the specific quality of the thing, the seller may choose the specific quality to be
delivered.
 However, the seller may not take advantage of his right to choose a particular quality and
offer a thing below average (medium) quality

What if an insufficient Quantity (non-conformity) or Quality (defect) of Fungible

Things is Delivered?
 The creditor may not refuse fungible things because the quality or quantity offered does
not precisely conform to the contract unless this is essential to him or has been expressly
agreed upon.
 where the thing does not precisely conform to the contract in terms of quantity, the
creditor may proportionately reduce (appropriate) his performance, or where he has
already performed, s/he may claim damages for the difference

What amount of Interest shall be due?

 The interest rate shall be 9 percent per annum where interest is due, and the rate has not
been fixed.
Where should be the Place of Payment or Delivery or Performance?

 Determination of place of payment or delivery of the thing or performance of a contract

is significant because it determines various aspects.
 Accordingly, the following three rules determine the place of performance of a contract:
i. Agreed place of payment or delivery on the contract, if any, shall be respected.
ii. Where no agreed place is fixed on the contract, payment shall be made at the location
where the debtor had his principal residence when the contract was made.
iii. However, if the thing is definite (specific), payment in respect of it shall be made at the
place where it was when the contract was made.

When should be the Time of Payment or Delivery or Performance?

  Determining the time of payment is also essential in that it determines various aspects of
the contract, such as the calculation of interest, the transfer of risk, the calculation of
damages, etc.
 The following are the rules concerning the time of payment:
i. Agreed time of payment or delivery, if any, shall be respected
ii. Where no time is agreed upon or fixed on the contract, payment may be made forthwith or
immediately, and
iii. Payment shall be made whenever a party requires or demands the other party to perform
his obligation.

When should Risk Transfer?

Risk refers to the payment of the value of the thing if the thing is lost (stolen), deteriorated
(degraded in quality), or destroyed (damaged).

 the risk always begins from the possessor and transfers to the other party (the next
possessor) due to the following factors:

i. After the actual delivery of the thing to the buyer

ii. After the date of delivery of the thing, i.e., regardless of the delivery
iii. After the date of payment and if the payment is agreed by the parties in the contract to be the
condition of delivery of the thing
iv. When the things are under voyage, the risk will be transferred from the seller when the
things are delivered to a carrier or a third-party custodian (consignment).

 only to corporeal chattels or things, and the non-performance of a fundamental

obligation by the parties is always a ground for the transfer of risk.

3.7. Non-performance of a Contract

non-performance of a contract refers to the failure of either one or both parties to

perform their obligations in conformity with the contract terms and the law. It is also called a
breach of a contract.
The following scenarios can be taken as significant instances of non-performance:
i. This failure or breach may be total- where a party fails to honor the terms of a contract.
ii. It may also be partial- where a party has performed their obligations only partly.
iii. It may also relate to delays in performance. Or failure to observe the time of performance
stated on the contract.
iv. Offering performance at a place other than the agreed place or a place fixed by law also
constitutes non-performance.
v. Delivering a thing that is non-conforming to the contract, or
vi. Delivering a defective thing also amounts to a breach of contract.
vii. An interruption of a successive delivery also amounts to non-performance.
Generally, any deviation by a party from the terms of the contract amounts to non
performance.
3.7.1. Legal Remedies of Non-Performance

 It is clear that a breach by one party affects the other party's interest, usually called the
Victim party
 one function of contract law is to enforce contracts. One way to do that is to remedy non-
performance, particularly by sanctioning failures.
 the parties may stipulate contractual remedies for breach of their obligation.
Default Notice

 before proceeding to exercise (invoke) the remedies of non performance, the creditor
should fulfill one more legal formality in that s/he should put the debtor at default or give
the debtor a default notice.
 The purpose of giving default notice is to remind (warn) the debtor that his obligations
are due, and it is time to perform his duty; otherwise, the creditor will resort to exercising
the legal remedies.
 However, giving notice is not always mandatory, or there are scenarios whereby the
creditor may directly proceed to exercise his legal remedies against the failed debtor.
i. In case of an omission type of obligation where the obligation of the debtor was to refrain from
certain acts or doing something

ii. the debtor assumed to perform an obligation that the contract allows to be completed only
within a fixed period (a compulsory date) and such period has expired, e.g., a Birth Date cake
iii. In case the parties have expressly agreed on the contract that notice is unnecessary
iv. In case of Anticipatory Repudiation (breach) („AR‟). AR is a situation whereby the debtor
expressly informs the creditor that he would (can) not perform his obligations, or it is a
written intent not to perform.

1. Forced (Specific) Performance of the Contract

 This is a remedy in which the creditor requests the court to force the hands of the debtor
to perform his obligation according to the contract or law.
 It may be done either by compelling the debtor (failing party) to perform their obligations
is called forced performance,or
 by authorizing the creditor (victim) party to perform the debtor‟s obligation at the cost
and expense of the debtor is called substituted performance.
 The court shall not award specific performance of a contract upon complaint and in favor
of the creditor unless:
i. It is of particular interest to the party requiring it- that the creditor cannot acquire similar

performance from other sources or that the performance of the obligation was the very reason

the creditor entered into the contract. And

ii. The contract can be enforced without affecting the personal liberty of the debtor. Only
proprietary interest shall be affected, not the personal freedom of the debtor.

2. Cancellation of the Contract

  Cancellation as a remedy for non-performance is in principle declared by the court. But
as a mater of exception, it can also be unilaterally declared by the parties, usually the
creditor. We will see the two one by one below.

A. Judicial Cancellation

 the creditor may apply to the court for a declaration of cancellation, and the court is
vested with the ultimate power to declare cancellation or not.
 The effect of cancellation puts the parties in a position that would have existed had the
contract not been made.
 Thus, the creditor can claim restitution for what he has paid or delivered during a
performance
B. Unilateral cancellation

 It is a condition whereby a party cancels the contract where a provision to this effect has
been made, and the conditions for enforcing such information are present (materialized)

3. Compensation or Damages

 The creditor can claim compensation for the damage or loss incurred due to non-
performance.
 This remedy may be claimed in addition to (additional) either of the above remedies or
independently.
 The purpose of awarding compensation to the creditor is to maintain the disturbed
equilibrium of interest between both parties due to the non-performance
 Therefore, as a rule, the compensation to be awarded by the court to the victim party
should equal the economic loss sustained by such party.
3.8. Extinction of Contractual Obligations

 contractual obligations do not stay forever. They come to an end by several grounds. We
will name and briefly explain these grounds.

1. Proper Performance: this is the most appropriate and recommended mechanism for

ending a contractual obligation.

 Article 1806 of the Civil Code stipulates that an obligation shall be extinguished where it
is performed per the contract.

2. Invalidation of the Contract: contracts to be invalidated are those with a problem of

formation concerning defect incapacity or consent

3. Cancellation of the Contract: Contracts to be canceled do not have problems with the
formation requirements. Or such contracts are lawfully formed. They have problems
related to non-performance.
  cancellation and invalidation is exact, i.e., reinstatement of the parties to the position
before making the contract.

4. Termination of a Contract: the parties to a contract may terminate their contractual

relationships upon mutual agreement or unilaterally. A party may unilaterally terminate a

contract by taking advantage of a „Termination Clause‟ made to the effect that the parties

or one of them may terminate the contract on notice.

5. Remission of Debt: a debt contract would be extinguished in favor of the debtor where
the creditor informs the debtor that he (the creditor) regards him (the debtor) as released
and the debtor is in agreement with the proposal submitted to him for the remission of the
debt.

6. Novation: an obligation shall be extinguished where the parties agree to substitute a new
obligation that differs from the original one on account of its object or nature.

7. Off-Set or Set-Off: where two persons owe debts to one another, set-off shall occur, and the
obligation of both persons shall be extinguished.

8. Merger : A merger shall occur, and the obligation shall be extinguished where the positions of
the creditor and debtor are merged or confused in one of the contracting parties.
9. Period of Limitation: A period of limitation is a duration (period) within which a legal action
must be brought before legal organs.

 Per Article 1845 of the civil code of Ethiopia, actions for the performance of a contract,
actions based on the non-performance of a contract, and actions for the invalidation of a
contract shall be barred if not brought within ten years.